Deficit spending will help offset the effects of lower oil royalties and will galvanize a return to growth in Oman's construction sector after a recession in 2015. Robust structural demand will drive outperforming growth in the power and water subsectors, while a government sponsored economic diversification programme will lay the foundation for a sustained expansion of the country's commercial and industrial infrastructure. A prolonged slump in oil prices remains the biggest downside risk to our optimistic outlook for Oman's construction sector; however, it is a risk that is attenuated by the government's ability to augment its own deficit spending with private investment from an increasingly diverse set of international investors under a Public Private Partnership (PPP) framework.

Forecasts And Latest Updates

- We have revised our construction sector growth outlook significantly upward for 2016, from 2.5% to 8.3%, to reflect the latest economic data and more generally, the impact of continued government support for infrastructure projects. Our longer term forecast is similarly optimistic, with a combination of deficit spending and the increasing ability to solicit private investment for infrastructure projects driving an annualized average growth rate of 5.5% over the first half of our forecast period.

- The government's economic diversification efforts under the auspices of its 'Vision 2020' plan appear to be bearing fruit, with the Omani government and a consortium led by Ningxia China-Arab Wanfang signing an agreement to develop the USD10.7bn Sino-Oman Industrial City near the port of Duqm, Oman. The 50-year deal will see the consortium develop about 11.7sq km of land in the Duqm Special Economic Zone. The consortium will provide funds for the scheme and plans three separate zones: heavy manufacturing, light manufacturing and a mixed-use area.

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